The European Commission believes that sustained public investment in key cross-border transport and energy links could boost EU output between 0.6 and 1.0 per cent, Commission documents showed today.
But EU states should not use this as an excuse to let their already ballooning deficits rise as this could trigger tighter monetary conditions and hit consumption, the document said.
The Commission's estimate appeared in a draft communication assessing the impact of a July initiative to boost sluggish growth by encouraging investment in infrastructure and research. The document is due to be unveiled next week.
"... a first analysis suggests that the effect of raising public investment in infrastructures by one point of GDP would be an additional 0.6 percent with that increasing to around one percent if the effort can be mantained in the medium term," said the draft document.
The Commission, current EU president Italy, as well as France and Germany, have urged more spending on infrastructure projects and research as a way to revive the struggling EU economy. Member states will discuss the Commission's plan at a meeting of finance ministers on October 6th and 7th.
But in its document, the Commission will also warn EU member states any additional growth can be attained only if states keep their budget deficits under control, the draft showed.
"Such simulations assume that there is no significant crowding out of alternative productive investment, and that the additional infrastructure spending does not induce an increase in the public deficit," the document read. The Commission said the short-term growth outlook in the 15-nation EU remained "bleak" and urged member states to back its growth initiative to boost confidence and competitiveness.
According to the latest Commission forecast, EU growth should average a mere 0.5 per cent this year.
The Commission's growth initiative follows suggestions by Italy to find new incentives for the private and public financing of infrastructures to boost the economy.
The initiative envisages more targeted spending for research and the development of high-growth sectors. France and Germany have said similar things in their own growth initiative, outlined earlier this month.